1. Next Generation Wind and Solar Power From cost to value Mexico City, 23 May 2017
Simon Mueller, Head System Integration of Renewables Unit

2. Significant cost reductions
Energy prices for selected technologies,
PV and wind costs have fallen dramatically in recent years
Causes: sustained technological progresses, expansion into newer markets with better resource, better financing conditions…
Impact of VRE deployment magnified by energy efficiency
Less energy demand  effective speed of VRE deployment is higher

3. Onshore wind: increased resource base and growing capacity factors
Capacity factor, wind resource and swept area, USA
Modern wind turbine technology in the United States has supported deployment in lower-resource areas and increased capacity factors.
Source: Wiser and Bolinger, 2016

4. Where do we stand & where are we heading?
DENMARK
IRELAND
PV share
GERMANY
2015 UK
BELGIUM
SPAIN
Wind share
MOROCCO
2015
ITALY
SWEDEN
AUSTRALIA
MEXICO
Additional PV
CHILE
share 2021
USA
CHINA
SOUTH AFRICA
Additional
THAILAND
wind share
INDONESIA
2021 0%
10%
20%
30%
40%
50%
60%
70%
Experience in a number of countries available how to integrate significant shares of VRE
According to latest available forecasts in 2021:
VRE is forecasted to exceed 20 % of annual generation in at least 6 countries
Double-digit shares becoming new normal for many power systems
Source: Medium Term Renewable Energy Market Report, 2016

5. Recent RE integration milestones
Scotland, 14 August 2016 : Daily wind power production exceeded demand
Denmark, 2 September 2015: The Western Danish power system runs without centralised power generation for the first time
Germany, 8 May 2016: Wind and solar PV cover the equivalent of 75% of power demand
Significance of events:
Denmark: Large generators are often seen as must-run to ensure system stability. Danish grid operator Energinet.dk demonstrated that this is not the case – important evidence for any system operator.
Spain: Operating wind plants below maximum feasible output in order to ramp up when needed is a crucial step for VRE taking over responsibility to balance supply and demand in real time.
PT: Demonstration that 100% RE with high shares of wind generation are feasible, if sufficient flexible RE are available.
Germany: Germany is approaching the point where wind and solar power could in theory cover all of power demand during low load and high VRE conditions. For commercial reasons conventional plants remain operational also during these periods.
Scotland: Demonstrates that days with wind covering most of demand are occuring in a growing number of regions
Portugal, 7-11 May 2016: Renewable energy (including hydro) covers the equivalent of 100% of power demand for 107 consecutive hours
Spain, 28 February 2016: For the first time, wind power provides upward balancing reserves

6. … but also challenges + o -
Wind penetration and curtailment in selected countries,
Grids + o
Generation -
Operation
Curtailment levels are a good indicator for successful VRE integration – growing curtailment signals shortfalls in power system flexibility

7. Electricity prices in North-East US (PJM), 1 Jan 2014, 17h05
The problem with LCOE
Levelised cost most common way to benchmark generation technologies
Pro: simple, straightforward
Con: assumes that electricity from all sources has the same value for the power system
Electricity prices in North-East US (PJM), 1 Jan 2014, 17h05
LCOE metric is not sufficient, because value of electricity can differ strongly depending on time and location.
Image source:

8. High value electricity
Factoring in value
Less useful:
Lower value
More useful:
Higher value
The value of electricity for the power system depends on where, when and how it is generated.
Low value electricity
High value electricity
When
When electricity is abundant
When electricity is most needed
Where
Far away from demand
Close to demand
How
No additional system services
Provides additional services for system

9. The solution: system value
System value (SV) considers the overall benefit arising from the addition of a power plant to the power system
LCOE
Investment costs
Operation and maintenance costs (fuel, emissions)
Financing cost … SV
Reduced fuel and emission costs
Reduced costs/ need for other generation capacity
Possibly reduced grid costs and losses
Increased operating costs for other power plants
Additional grid infrastructure costs
Curtailment + -
LCOE and SV are complementary: LCOE focuses on the level of the individual power plant, while SV captures system-level effects

10. New priorities for deployment of wind and solar power
Traditional approach
Next generation approach
When is electricity produced?
Not considered
Optimised: best mix of wind and solar; advanced power plant design; strategic choice of location
Where is electricity produced?
Best resources, no matter where
Optimised: trade-off between cost of grid expansion and use of best resources
How is electricity produced?
Do not provide system services
Optimised: better market rules and advanced technology allow wind and solar power to contribute to system services
Next-generation wind and solar power require next generation polices.

11. System transformation
Policy and market framework
Level of VRE penetration
System-friendly VRE deployment
Flexible resources
planning & investments
Grids
Generation
Demand shaping
Storage
System and market operation
Actions targeting VRE
Actions targeting overall system

12. Key action areas and policy examples
Integrated planning: wind and solar embedded in energy strategy
Denmark: integrated energy strategy
Location: siting VRE closer to existing network capacity and/or load centers
Location: new auction design for wind and PV
Technology mix: balanced mix of VRE resources can foster lasting synergies
Technology mix: Integrated Resource Plan
Optimising generation time profile: design of wind and solar PV plants
California: incentive to produce at peak times
System services: wind and sun contribute to balance system
System services: wind active on balancing market
24/7
Local integration with other resources such as demand-side response, storage
Australia: incentives for self-consumption

13. Next generation policies
Policy and market frameworks must seek to maximise the net benefit of wind and solar power to the overall power system.
A more expensive project may be preferable if it provides a higher value to the system.
Despite its lower cost, technology B will deliver lesser benefits than technology A
Value technology A
Value technology B
System benefits
Cost of technology A
System benefits
Cost of technology B
Next generation wind and solar power calls for next generation policies. These must focus on maximising value in addition to reducing cost.

14. 5 main recommendations
Next generation wind and solar power calls for next generation policies. These focus on maximising value while reducing cost. Time-based pricing is key.
Power system transformation: integrate high shares of VRE cost effectively by adopting a whole energy systems’ approach.
Advanced VRE technology: ensure power plants can provide system services by adopting forward-looking technical standards.
Distributed resources: reform the institutional and regulatory structure of low- and medium-voltage grids, reflecting their new role in a smarter, more decentralised electricity system.
Strategic planning: develop or update long-term energy strategies to reflect potential of next-generation wind and solar.

15. Mexico Good wind and solar resources, in particular near the coastline
Dynamic power market with strong need for investment in power generation and transmission expansion
VRE a key building block of future power supply expansion plans
Average wind speed

16. Mexico Drivers Challenges
A major energy reform launched in 2013 split the vertically-integrated utility, and further opened up the market to new investment from private parties (IPPs)
Long-term auctions for procuring VRE capacity recognize the spatial and temporal value of electricity production, while providing investment certainty. This is a major innovation for VRE procurement globally.
Drivers
Strong demand growth
Reform opens up market further for private investment
Long-term capacity expansion plans plan good prospects for VRE
Challenges
Maintain momentum for reform towards full implementation in 2018
Aligning transmission build-out with awarded generation capacity

17. Price adders evolution
Example of price adders for VRE: area of Laguna, 2020
Prices adders are updated for each auction to account for the evolution of local supply and demand considering the (future) commissioning of previously awarded projects.

18. Discussion questions
Does the current auction design deliver on system friendly deployment?
Is the long-term evolution of the grid accurately reflected?
Is price-based location control an effective steering mechanism or could development zones be a better option?
Are future flexibility options sufficiently considered in the price adders?
What other aspects of the reform need to be prioritized to achieve wind and solar integration?